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SCOTUS Case May End Sale Prices
An anonymous reader writes "If you own a mom & pop store and can't get rid of some of your inventory, you can always clear out some shelf space by holding a sale. If the Supreme Court sides with business interests in a case they heard today, however, such sales may no longer be possible. Since 1911 it has been illegal for manufacturers to force retailers into setting a price floor for products — individual retailers get to decide how much they sell products for. But today the Supreme Court heard oral arguments in a case seeking to overturn this longstanding rule. Should the Court do so, it would drive up consumer prices across the board. This case is particularly salient in the era of Internet shopping: consumers are now easily able to shop around to multiple retailers to find the best price. The Court could wipe out this advantage." From the article: "Should the Court abandon the... rule against minimum resale price maintenance... it would send a signal that the Roberts Court will continue to narrow the application of the antitrust laws and that the Court may disregard settled precedent and Congressional will in other areas of the law as well."
As a retailer, I would simply stop stocking any product that forced me to sell at price higher than the market could bear. This would backfire on manufacturers and have a terrible effect on availability and ultimately amount of goods sold, i.e. recession time... In some cases Internet retailers sell at or below cost as loss leaders, or the volumes are so much higher than a small store could sustain but I don't see how you could apply this equally to all products sold.
You'd see a vastly improved rebate industry ramp up, and more importantly, you'd see retailers "bundling" things that they would then instantly take back for a substantial credit/refund. Anyone who's worked retail (especially IT supporting retail!) knows how creative someone can get while competing with someone else two doors down in the strip mall. Where this would get ugly is the little stuff... like, toothbrushes.
Another solution? Retailers who thrive on competitve pricing all become like Costco, and sell things "wholesale" to their member customers. It's sort of like those bars where you have to become a "member of the club" (for $0.01) in order to have a drink poured.
This effort will flop, or there will be a legislative cure anyway. Wal-Mart alone would lobby that one right into the stratosphere.
Don't disappoint your bird dog. Go to the range.
it would drive up consumer prices across the board.
Is the submitter suggesting that the periodic sales by mom & pop storesare responsible for keeping retail prices in check "across the board?"
Anti - price fixing laws are actually becoming quite a real problem or manufacturers and retailers, because they have to juggle the retail channel (which really needs 30%) with the online channel, which can be profitable on only about 6% margin. Preventing online from undercutting retail means giving them less margin, which is fair, but even then they can undercut until their margin is absolutely microscopic and still make money, whereas the retailer can not.
If you're happy with a world where brick and mortar retailers just can't exist, then by all means keep the current system and they will die, and not because of free market forces, but because manufacturers can't control their street prices.
Check out the scuba equipment market. Most stores that stock scuba gear are mom & pop's - the big box stores don't bother with this niche stuff. The mom & pop's sign price floor agreements with the manufacturers in order to sell the gear and get the warranty. Now they're getting slammed by oversea's "grey" marketeers that are shipping stuff over the Internet for half the costs. They aren't under warranty, but the retailers themselves have provided an aftermarket warranty to get around it, as they're making enough cash that its worth it just to replace the item. You just can't have these kinds of agreements anymore with the transparency and information exchange the internet allows. New business model time boys! Oh, wait, I'm sorry, I mean -- call the lawyers!
Price controls/manipulation are never a long term positive economically speaking. These kinds of things always lead to inefficiencies, which have a net negative economic impact.
They do, however, make excellent fodder for populist politicians and the pathologically uninformed. Bread and circuses, anyone?
In high minded theory land, doesn't a more efficient producer step in in that case?
Nerd rage is the funniest rage.
The apologists for the Nanny State routinely trot out antitrust as an example of where the free market doesn't work, but in reality it's the industries with the most regulation by government that are the most monopolized. Take telecommunications. For most of the history of telephones, it was illegal to compete for customers. That monopoly was enforced by local governments. But I guess as long as you control the government schools that teach the history of 'Robber Barons', people will believe the propaganda.
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If online retailers can provide the same thing for 24% less then we should have very few brick and mortar retailers.
Grocery stores would still exist, as would convenience stores. Clothing shops might do OK since people like to try things on. There are always impulse/emergency items, in many categories. I can see the need for a handful of electronic/computer retailers in a large city.
Can you give me a good reason we should prop up an obsolete business model besides nostalgia or personal preference?
The way I've shopped in the last 10 years is: Online comparison/research. Online purchase unless shipping is more expensive than local, I want an easy return, I need to touch/smell/hear/taste the item first, or I'm in a big hurry.
I always assumed that eventually everyone would adopt this model of shopping and we'd see a massive collapse of brick-and-mortar retailers. Retailers that are smart will be able to adapt. Lots of opportunities, like partnering with an online retailer, offering amenities that aren't possible online, etc.
Man, you really need that seminar!
No, apple sells their product at such a high cost compared to MSRP that no retailer can afford to discount them. Try 8% margin on ipods that cost 150$. That barely covers the credit card swipe and the time it takes someone to stock it on the shelf and scan it at the register. Much less pay invoices, track shipments, pay the light bill, and hire supervisors/managers to oversee all that.
Move it to the internet sales, and its the same story. internet retailers survive off 5-10%. 8% isn't really that high a margin. Even if someone wanted to discount it to sell for cost and make up the money on upsells, WOO HOO, they sell it for 12$ off. Not much there in the way of discounting now is there?
Sure, the larger retailers can sometimes cut a slightly better margin deal with apple if they agree to purchase pallets at a time, and they do. But that is their competative advantage, and there is no reason for them to sell below MSRP (or a dollar below) when all their competitors are barely breaking even. It is much better for the Best Buy's of the world to bundle a free product like iTunes card or accessory discount with the full priced iPod.
Your ignorance is infinitely greater than you realize.
I hope the slashdot libertarian crowd is coming out of the woodwork in support of this one. I mean individuals should be able to enter into any sort of contract they want right? And its not the free hands fault when every vendor forces this upon the merchants, thereby driving up costs to all consumers.
Well both small and large retailers do it; and most manufacturers don't care, or have a reason to. Small retailers do it to get rid of stock that isn't selling well; large ones do it to get rid of... the small retailers.
Although most manufacturers do set a minimum advertiseable price. But again, many major retailers refuse to follow such rules, and most small ones aren't really subject to scrutiny.
That same Adam Smith is the same Adam Smith who is the origin of pretty much everything that has historically been considered a free market.
In Smith's day state monopolies were a common means of raising revenue. Smith demonstrated that such restraints on trade have hidden costs that are much greater than were imagined at the time. The cost of the tax is much greater than the amount paid raised in revenue.
In libertopia they do things differently of course, the only evil that can ever exist in libertopia is the result of people consipiring together through the government. The fact that a large corporation has a similar coercive power to government is inconvenient ideologically and is thus ignored.
Nothing is going to happen here. At worst the SCOTUS redefine the interpretation of the anti-trust acts. But that might well be the best outcome long term for consumers since if Congress revisits price maintenance agreements making them explicitly illegal they wil probably act on advertised price maintenance as well.
I don't see an argument being made that prohibiting retail price maintenace is unconstitutional. Even though many members of SCOTUS are notorious partisan hacks I don't see that as being very likely.
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retailers dictate price to manufacturers. This is one of the thing people whine about when the bash Wal-Mart.
Except that there's only one Wal-Mart, and what will happen is that Wal-Mart will dictate that they get a price floor that is 75% less than everyone else's, and they mop up their competition.
Personally, I think that contractual price floors are repugnant, not because of antitrust concerns, but because it's a contract that affects me directly without permitting me to have any negotiation rights or to even agree to it.
I don't think it's quite as biased against bricks and mortar as you suggest.
If I browse in a bookstore and find something interesting I am very likely to buy it right there and then, because I'm excited by it. I'm not thinking about how I could order it online for less because I want to read it now. I don't want to wait a few days while Amazon packs it and sends it to me, and maybe it's not in stock at Amazon and I'll have to wait a week or more.
If I am going out on the town tonight and I need new shoes I don't have the luxury of waiting while some online store delivers them to me.
Maybe there are people who plan all their purchases days or weeks in advance, but for a large number of people most small to medium purchases are done on impulse or at short notice.
For goods like cars or high-end stereo equipment which require research, trial and considerable investment, I can see more of a problem. If I can't test-drive a car, there's no way I'm going to buy it. I think I would be willing to pay 0.5 - 1% of purchase price to test-drive a car for a couple of hours, or listen to an amplifier and speaker combination to decide that I'm happy with it.
Also, Borders has found a way to make money from browsers, by having Starbucks in their stores, and caffeine-addled shoppers are more likely to spend.
The manufacturers have a big interest in making sure retail outlets survive - because people are more likely to buy something they can touch and test. Maybe manufacturers can subsidise retail stores to make them more competitive.
Finally, the advantage of purchasing online isn't just about price. I have access to a much wider choice of products from the comfort of my keyboard, I can do research on specifications and customer experiences, and I can make my purchase more quickly (and more economically) than if I have to drive to various stores to inspect there offerings. Maybe retailers can do some work here to level the playing field - like providing internet access so I can check if this wireless card works in the latest Ubuntu, or whatever. That last item is one of the biggies for me, I've walked out of stores where I might have a purchase because it's not possible to get all the information about a product from the shop floor, and shop assistants are rarely knowledgeable about their products or my needs.
Yours Sincerely, Michael.
if the local bookstores days are at an end, so are the local butcher, the local grocer, the local record shop, the local clothing boutique, the local computer shop, local hardware store, etc, etc, etc. pretty soon, all we'll have is walmart, target, barnes and noble, borders, best buy, macy's, jc penny, circuit city, compusa, and home depot.
What's your point?
People vote with their wallets every day, and they've pretty clearly indicated that they don't value these type of establishments, in most cases, enough to pay their premiums. The "value added" in other words, of the local butcher, just isn't enough to most people, to cover the increase in cost versus prepackaged meat from the megamart.
I'm sorry that you don't like the way it's worked out -- and if it helps, I agree with you, and I refuse to shop at Walmart (or Target, or Home Depot) when there's an alternative -- but I think it's fundamentally wrong to try and keep obsolete businesses alive at a direct cost to consumers who have clearly voted with their feet and their wallets and said they're not interested. That's at best regressive, and at worst tyrannical.
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My point was not anti-copyright. My point was that copyright is inherently a monopoly and thus there cannot be free trade, furthermore, interoperability requirements and DMCA mean that this government sanctioned monopoly can be extended to hardware. Imagine that you want to put a song onto a mobile player and that song is only available through iTunes (it is not even available in a CD form from which it can be legally ripped). You no longer have a free choice on your purchase of player. If one player cannot be substituted for another, is there a free market?
The real "Libtards" are the Libertarians!
As a player in the market I play not just for profit, but for market share. My aim is to put all competitors out of business, and since I'm in a market with very high barriers to entry I can keep them out of business. Now that I have achieved a monopoly (and monopoly rents), the retailers have no choice but to do business with me and I will certainly dictate the exact conditions under which my products can be sold. If I'm unable to achive a monopoly, I will instead collude with the other surviving players to our mutual advantage, and again to the disadvantage of retailers and consumers.
The problem with your scenario is that it relys on a market that has a "high barrier to entry", or a market whose barrier to entry is so high that no other players can enter, no matter what. The reality is though, in a true free market this is never the case. No matter how high the barrier to entry, there is always room for another player.
There are two things that can help overcome high barriers to entry. Large companied with lots of capital, and innovation of new technologies. Large companies help because, for example, if every widget company decided to start selling their widgets for double the price that they should, then some other rich company with lots of capital to invest in making widgets is going to come in and start selling widgets for less.
The most important equalizer to high barriers to entry though is innovation. No matter what, new technologies will always be invented, and no monopoly can ever rest on its laurels forever. The market may be unbalanced for a short while, but it will even itself out, quicker and fairer than slow moving anti-trust laws can.
The only way that there can be a market with an infinitely high barrier to entry is when the government is involved, through patents, copyrights, subsidies, and other protectionist laws.
The problem with your scenario is that it relys on a market that has a "high barrier to entry", or a market whose barrier to entry is so high that no other players can enter, no matter what. The reality is though, in a true free market this is never the case.
You don't need to achieve a pure monopoly to dictate to retailers or charge near monopoly rents. Look at the example I cited, ie. the PC OS market Sure you can point to MacOS, and Linux, but these don't seriously dent Microsoft's power, especially in regard to small business computer retailers (maybe someone as big as Dell can get away with shiping PCs without that OS installed ...). Note the barrier to entry here isn't capital expenditure, as it is in chip manufacturing for instance, but primarily network effects.
The most important equalizer to high barriers to entry though is innovation. ... The only way that there can be a market with an infinitely high barrier to entry is when the government is involved, through patents, copyrights, subsidies, and other protectionist laws.
While I'm against the overweening IP regime we are currently subjected to, we should not loose sight of the necessity of IP regulation. IP addresses another market failure, namely the 'free rider effect,' (again demonstrating the necessity of some limited state intervention for a functioning capitalist economy). For innovation to be an effective equaliser to barriers to entry, it requires that very IP protection you decry! Otherwise the innovator will simply have their innovation taken from them by the established players in the market. The innovator bears the research costs, while big guys use their market power to cut that innovator out from the profits of their own innovation. Not a good look.
The market may be unbalanced for a short while, but it will even itself out, quicker and fairer than slow moving anti-trust laws can.
That is a very romantic notion ... unfortunately history demonstrates the exact opposite.
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No, the primary reason is a legacy of colonialism and exploitation from the age of European empires.
It is true that colonialism was, on the whole, more harmful than beneficial to those formal colonies which are now independent nations. However, it is also true to say that not everything about colonialism was necessarily a bad thing. The railroads, port facilities, and other colonial improvements made by the British throughout their former empire, notably in India, were reverted to the ownership of the newly independent nations and that windfall of improved infrastructure did partly compensate for the less desirable effects of colonialism in that the new nations began with something of a head start with regard to roads, ports, government buildings, railroads and the like.
However, even when the negative effects are accounted for, and most nations are now 50 years out from their colonial pasts, it does not fully explain why these now independent nations have failed to seize the day and produce for their citizens 50 years of economic growth and progress that was, in theory at least, possible once the colonialism ended.
In fact, modern third-world governments do a fine job of protecting property rights - of multinational corporations. It's actual citizens who lose out.
I would compare this with the dictator offering a good friend or family member, or indeed a foreigner with money to spend, special privileges that fall outside of the laws of that country or not covered by those laws because of the power of the dictator. This is not the same thing as an impartial and independent judiciary enforcing the private property rights of multinational corporations within the framework of the rule of laws. It should not therefore be used as an argument against the efficacy of protecting property rights in per se since it it in fact nothing more than the will of the dictator dressed up in words like "protecting the legitimate property rights", "freedom", and "democracy".
Then property becomes a tool for hoarding the resources of the planet, for concentrating control of capital into the hands of a state-backed owning and ruling class, then we need to realize that ideas that can usefully be applied to guitars, cannot necessarily be usefully applied to large tracts of land, natural resources, or ideas - and certainly not to shares in control of, and profit from, the actions of immortal fictitious citizens created by government fiat.
I suppose that this simply comes down to a basic disagreement on the means to best achieve the same goals. We both of us agree that we would like to own some land with a dwelling and perhaps a car and other personal possessions and amenities of our choosing, but we disagree on the best means to achieve those goals. If you believe that everyone should have an equal share of a smaller total pie then by all means vote for government control of markets and capital and we will all be equal in our misery. On the other hand if you believe in yourself and the rights of yourself in others to invest your capital in business and to work to increase that capital without the government swooping in and confiscating the fruits of your labor at whim then you should not be against the sort of concentration of capital that tends to occur in the later rather than the former system. If private property works for your guitar then why should it not work equally well for say generation of electricity or steel or other more "vital" industries, what Lenin called, the "Commanding Heights" of the economy? The answer is that it does and should not therefore be restricted. In fact, the only industry where the government should maintain complete monopsony control is in the defense industry. The history of the twentieth century proved these assertions conclusively with the collapse of communism and the abandonment by China of any pretense of Marxist economic policies.
Mistaking property